By Yin Wilczek
Sept. 22 — In its largest reward to date, the Securities and Exchange Commission Sept. 22 announced that it awarded more than $30 million to a foreign whistle-blower who helped the agency unveil an ongoing fraud.
In an order, the SEC said that, given the monetary sanctions collected from its enforcement action so far, the whistle-blower should receive a total award of between $30 million to $35 million.
The award “shows the international breadth of our whistleblower program,” Sean McKessy, chief of the SEC's Whistleblower Office, said in a release. “Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
The SEC's order was heavily redacted to protect the whistle-blower's identity. In a footnote, the agency said it believed an award was appropriate “notwithstanding the existence of certain extraterritorial aspects of Claimant's application.”
“In our view, there is a sufficient U.S. territorial nexus whenever a claimant's information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations,” the footnote said. “When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas.”
The SEC also noted in its order that the reward was adjusted downward because the whistle-blower's delay in reporting the perceived violations was “unreasonable.” However, given that some of the delay occurred before Dodd-Frank established the SEC's whistle-blower program, “we have determined in our discretion not to apply the unreasonable delay consideration as severely here as we otherwise might have done had the delay occurred entirely after the program's creation,” the order states.
Separately, the law firm of Phillips & Cohen LLP said in a Sept. 22 release that it represented the whistle-blower at issue.
“Our client exposed extraordinarily deceitful and opportunistic practices that were deeply entrenched and well hidden,” Washington-based Phillips & Cohen partner Erika Kelton said in the release. “Federal regulators never would have known about this fraud otherwise, and the scheme to cheat investors likely would have continued indefinitely.”
The law firm release confirmed that the whistle-blower is a foreign citizen.
Meanwhile, attorneys who represent whistle-blowers said both the size of the award and the rewarding of a foreign claimant will boost the SEC's bounty program.
The SEC's previous largest-ever reward—$14 million awarded in October 2013—resulted in a spike in the program, said Jordan Thomas, a Washington-based Labaton Sucharow LLP partner who chairs the firm's Whistleblower Representation Practice. “I would expect a similar spike with the announcement of” this reward, he told Bloomberg BNA.
The SEC's highlighting of the international aspects of its latest reward will increase the level of participation by foreign tipsters, Thomas said. The message will reach some individuals “who have heard about the SEC's whistle-blower program but didn't know foreign nationals could participate.”
Jason Knott, a Zuckerman Spaeder LLP partner in Washington who focuses on business and employment issues, also suggested that the latest reward will encourage employees—particularly ones in foreign countries—to report misconduct to the SEC rather than internally to their employers.
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The SEC's release is available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543011290#.VCBVKBbIk75.
The SEC's order is available at http://www.sec.gov/rules/other/2014/34-73174.pdf.
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